The Companies Amendment Bill, 2020 was introduced to amend the Companies Act, 2013 with the intent of improving the ease of doing business in India, de-criminalizing various minor offences and regulating producer companies, amongst other aspects. On September 28, 2020, this Bill received the President’s assent and was notified in the official gazette on the same date as the Companies (Amendment) Act, 2020.
The key changes brought by the Amendment Act are highlighted below:
- Decriminalisation of minor offences: The Amendment has done away with imprisonment as a consequence of contravention of certain provisions of the Act for various offences under the Act. In addition to this, the fines or penalties have been reduced, modified and omitted for these offences. By way of example, imprisonment has been eliminated as a punishment for contravention of provisions in relation to buyback of securities, disclosure of interest by directors, financial statements and Boards’ report, formation of companies with charitable objects, disqualification of directors and constitution of audit, stakeholder relationship and nomination and remuneration committee. Similarly, penalties and fines have been omitted/modified/reduced for contravention of provisions in relation to filing of annual return with Registrar, variation of shareholder rights, transfer of securities, alteration of share capital and reduction of share capital, among others.
- Definition of Listed Companies: The definition of Listed Companies in S. 2(52) has been amended to exclude certain companies from issuing specified classes of securities, in consultation with SEBI. In the definition, it is stated that such class of companies would not be considered as Listed Companies. Further, under section 23 of the Act, a sub-section 3 has been inserted Act empowering the central government to allow certain public companies to list their securities in foreign Jurisdiction.
- Rights Issue: The Amendment has amended S. 62 of the Act and has reduced the time period for providing offer letter to the existing shareholder under Rights Issue process to less than 15 days or such lesser number of days that may be prescribed. Earlier, the time period was between 15 to 30 days.
- Declaration in respect of Beneficial Interest: By way of amendment, few conditions for Significant Beneficial Owners (SBO) have been inserted under S. 89 of the Act, such as filing of declarations with respect to beneficial interest in the shares of the company and to file returns with the registrar intimating such beneficial interest. The contravention of the provisions would lead to imposition of penalties. The Amendment also empowers the Government to exempt any class or class of persons unconditionally from complying with the requirements of the section.
- Periodical Financial Results: By way amendment, new section 129A has been inserted to empower the government to prescribe by rules such class or classes of companies that would be required to prepare the financial results of the company on periodical basis, as prescribed. Further to obtain the approval of Board of Directors and complete audit or limited review of such periodical financial results in such manner as may be prescribed. Also, to file a copy with the Registrar within the period of 30 days of completion of the relevant period with such fees.
- Corporate Social Responsibility: By way of Amendment, S. 135 of the Act has been amended to provide that if the company has spent excess amount in any financial year, beyond the 2% statutorily mandated Corporate Social Responsibility contribution, then such company can adjust the amount of Corporate Social Responsibility spend in the subsequent years to set-off the excess amount spent. Further, contravention of these provisions would result in penalties. The Amendment has also prescribed that there would no requirement of CSR Committee, where amount is less than 50 lakhs.
- Independent Directors and Non-Executive Directors: By way of amendment to S. 149 and S. 197 of the Act, the Independent Directors and Non-Executive Directors have come under the remuneration payable as per Schedule V in case of no profits or inadequate profits.
- Constitution of NCLAT benches: The Act has inserted Section 418A with the objective of setting up more benches of National Company Law Appellate Tribunal (NCLAT) that will ordinarily sit in New Delhi. The said benches of NCLAT will be constituted by at least one Judicial Member and one Technical Member.
- Wrongful withholding of property: By way of amendment, S. 452 has been amended to provide that the imprisonment of such officer or employee for wrongful possession or withholding of property, shall not be ordered if the court is satisfied that the company has not paid to that officer or employee his dues towards provident fund, pension fund, gratuity fund, or any other fund established for the welfare of officers or employees maintained by the company, or any compensation under the Workmen’s Compensation Act, 1923, in respect of death or disablement.
- Producer Companies: The Act has provided for the introduction of producer companies under Chapter XXIA. Producer companies are those that are engaged in business activities such as production, handling, procurement, marketing, selling, import/export or other such activities as provided for under Section 581B of the Companies Act, 1956[7] (1956 Act). This chapter provides regulations with respect to incorporation, registration, formation, voting rights of members, general meetings, share capital, and mergers and amalgamations of producer companies.
Conclusion: The Amendment Act of 2020 has the potential to promote foreign investment by facilitating the ease of doing business. The decriminalization of certain offences would help safeguarding investors against criminal liability for minor non-compliances. This will result in increase of foreign investment, which will boost India’s economy. Various measures such as, the constitution of Appellate Tribunal would provide swifter redressal of grievances in India. The introduction of Producer Companies would also be beneficial for agriculture, handlooms, handicrafts and other related industries. At the outset, the Amendment Act of 2020 is expected to ensure greater accountability and strengthening of corporate governance norms and compliances in the corporate sector.
† Tanvi Singh, Editorial Assistant, EBC Publishing (P) Ltd.